AS A financial scandal, the personal pensions transfer debacle has plenty going for it.

Greedy insurance salesmen preying on teachers, nurses and newly-redundant miners. Half a million people facing an impoverished retirement. Hundreds of millions of pounds at stake. Life insurance companies and financial advisers facing collapse because of compensation payments. And the prospect of a government embarrassed by its championing of the personal pensions revolution.

The Securities and Investments Board (SIB), the chief financial regulator, last week unleashed a whirlwind that looks likely to uncover the costliest mess in the tarnished history of the financial services industry. Compensation for pension problems will make home income plans look like a flea bite.

That, at least, was the picture painted by a week of alarming headlines. But it may not be quite that simple.

Take the case of the redundant miners. Thousands of them have transferred their benefits to personal pensions, despite advice from a leading firm of financial consultants that they would be better off staying in the Mineworkers' Pension Scheme, which is widely recognised as one of the best and most generous in the country.

The scheme's trustees contracted WM Mercer to advise miners about a year ago, concerned at the flood of members transferring out of the pension fund, and at the quality of advice they were receiving from pensions salesmen. Salesmen have targeted mining villages in the wake of the widespread pit closure programme.

A Mineworkers' Pension Scheme official said that the appointment of Mercer had stemmed the outflow of members, but that the overall impact had been disappointing. 'It has not had as much effect as we might have hoped,' the official said.

About 65,000 former miners have transferred a total of pounds 736m out of the scheme so far, most in the last couple of years. Much of the money has gone to TSB Pensions ( pounds 84m), Pearl Assurance ( pounds 61m), Prudential ( pounds 58m), Britannic Assurance ( pounds 45m) and Legal & General ( pounds 42m).

The scheme official said some miners had regarded Mercer as a British Coal-appointed adviser, diminishing the effect of the firm's guidance. 'Their own advisers are telling them something different.'

Stewart Ritchie, director (pensions development) of Scottish Equitable, one of the largest companies in the personal pension transfer business, said one had to recognise the anger and resentment redundant workers often felt towards their former employer. 'You have to realise, a lot of the time, individuals say, 'I don't care what the figures are, I just want my money out.' It's a common reaction.'

This presents a potential nightmare for the SIB in establishing the scope of the eventual compensation. If the client's demand to be removed from his occupational pension scheme is fully documented, the financial adviser or salesmen who arranged the transfer should not be exposed to liability claims.

But early evidence suggests that many personal pension sales were made without enough records to justify the transaction in retrospect. Offered the prospect of further cash through compensation payments, pension transfer clients will have an incentive to claim they were badly advised or did not understand the consequences of their actions.

This is one of numerous complexities that the SIB will have to address during its review, which it intends to complete next July.

The SIB is concerned with potential financial harm suffered by two separate groups of personal pension policyholders: those who have 'opted out' of their occupational pension schemes, and those who have transferred the pension benefits accumulated in the pension schemes of former employers. Together they number about half a million, the overwhelming majority being transfer cases.

KPMG Peat Marwick is finishing off a pilot study of nearly 1,000 cases drawn from independent financial advisers and life insurance companies. About a third of the clients seem to have suffered financially because of the advice they received; only about a fifth were given advice that could be regarded as unquestionable. The SIB and Andrew Large, its chairman, find these standards unacceptable.

The pilot suggests perhaps 150,000 people with personal pensions may have lost out. The SIB review hopes to offer them restitution, either by arranging for them to rejoin the occupational pension scheme they left, or by boosting the funds within their personal pensions. Either way, the cost of compensation looks set to run into hundreds of millions of pounds.

Employees who have opted out of occupational pension schemes are almost certain to have been badly advised by the consultants who arranged their personal pensions. Only in very rare circumstances is it sound advice to leave a company pension scheme that may typically offer a contribution from the employer and benefits that are salary-based, enjoy some protection from inflation, and include a payment on death.

At the introduction of personal pensions in 1988, life insurers widely recognised their inappropriateness for members of occupational schemes. Yet despite this, the companies seem to have accepted business from many thousands of employees enticed away from their company pension funds.

Teachers seem to have been a particular target, salesmen often having arranged staff briefings through headmasters. Nearly 27,000 teachers have left the Teachers' Superannuation Scheme, into which local education authorities pay 8.05 per cent of salaries and which provides valuable index-linked benefits.

Marion Bird, at the Association of Teachers and Lecturers, said: 'The vast majority of the 27,000 who left were badly advised.' Only a few young teachers deliberately opted out to avoid paying their own contribution into the scheme.

The life offices that accepted this business include many who should have known better: Legal & General, Equity & Law, Sun Alliance, Guardian Royal Exchange and Abbey Life. Ms Bird said Teachers Assurance seems more deeply involved than some of the others. Teachers denies making any attempt to attract employees out of their occupational schemes, and insists that it only accepted opt-outs where clients intended to change jobs or where they explicitly wanted to leave the group scheme.

Every large sales force may have some incompetent or reckless consultants. But there seem to be far too many 'errors' to generate much sympathy for the life offices.

Chris Hatry, managing director, sales and marketing, at Legal & General, said for all their public pronouncements against opt-outs, life offices had failed to match their actions to their words. Mr Hatry said: 'Certainly in the early years, 1989, 1990, 1991, the degree to which companies policed (opting out) was mixed.'

Legal & General has had 'a very small number' of complaints, but it has gradually tightened its procedures, Mr Hatry said.

The transfer problem is much more complex, and what constitutes good advice is more open to argument.

Mr Hatry and others point out that pension scheme trustees have a duty to pay a fair transfer value for the benefits given up. If this always happened, the scope for criticising transfers would be much reduced. However, actuarial valuations of transfer values vary enormously.

Treatment of discretionary benefits and choice of interest rate are particularly important differences.

The benefits offered by personal pensions are qualitively different. Transferees are often swapping an index-linked salary-based pension together with a lump sum death benefit for a pension whose value is uncertain and will be determined by future market movements.

Lautro, the life insurance regulator, claims to have made checks on its members' transfer business and demanded action where necessary. 'It's a problem that many members have already dealt with,' an official said.

Life insurers believe the SIB has been less vigilant in monitoring the activity of the banks and others it regulates directly instead of through a junior satellite like Lautro. Black Horse Life, part of the life insurance business of Lloyds Bank, has certainly had problems. Stephen Maran, chief executive of Lloyds Abbey Life, confirmed that Tillinghast, the actuarial consultancy, is helping it to assess the need for any corrective action.

Black Horse Life and, last month, Abbey Life have pulled out of the pension transfer market. Barclays Life and Midland Life have also withdrawn.

Gareth Marr, managing director of Moores Marr Bradley, a leading pensions adviser, and also deputy chairman of Fimbra, the regulator for financial advisers, illustrated some of the difficulties likely to arise in assessing the correctness of transfers.

He said a redundant miner who was over 50 might never work again, he said. If a pensions salesmen offered him the chance to transfer pounds 25,000 from the Mineworkers' Pension Scheme, retire immediately and take a quarter of the fund as a lump sum, 'one can see the temptations'.

He added: ''The mineworker might have been told it's bad advice, but he's said: 'I'm not thinking long-term, I'm thinking how to give my kids a good Christmas.' '